The Wall Street Journal-20080114-The Evening Wrap- Tech Talk- Online edition
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The Evening Wrap: Tech Talk; Online edition
With consumer spending looking increasingly feeble, investors were heartened by indications from IBM and SAP that corporate tech spending still has a pulse.
Technology giant IBM offered an early peek at results it will formally reveal on Thursday, reporting that earnings per share for fourth quarter would be up 24% from the year-earlier period. That's 7.7% higher than the $2.60 average estimate out of analysts surveyed by Thomson Financial. IBM chief Samuel Palmisano said in a prepared statement that the improvement was "led by strong operational performance in Asia, Europe and emerging countries." The company -- which is widely seen as a barometer of capital spending -- also said its revenue for the quarter would come in at $28.9 billion, up 10% from a year earlier. Roughly six points of the gain came from currency translation, mirroring the slumping value of the buck versus the euro and other major currencies. But outside of those details the company was decidedly tight-lipped about how its various business lines had fared, though more details presumably will come Thursday.
Regardless, shares of the Dow component rallied more than 5% and pulled the markets along for the ride. Still, some analysts wondered how much to read into the results. "The million dollar debate remains, are 2008 tech trends weakening, and if so by how much," wrote Louis Miscioscia, an analyst with Cowen & Co. IBM's rosy report was especially surprising in light of its significant business dealings with the financial industry, which is wobbling under the weight of subprime woes and, as a result, likely won't be a voracious customer base in the near term. IBM gets roughly 30% of revenue from the sector, and given that level of exposure, IBM's ability to beat expectations is "very encouraging," wrote analysts with J.P. Morgan. Another encouraging reading on the tech front came from German software giant SAP, which on Monday it said expects fourth-quarter sales to rise 10%, ahead of Wall Street expectations. Still, to understand what IBM's results say about other marquee names in the tech sector, details on the source of sales -- software, hardware or consulting services -- must be parsed. "We're not out of the woods yet," J.P. Morgan analysts wrote. Another piece of the puzzle that is the tech market will come late tomorrow in the form of Intel's earnings report, which may offer insight on demand for PCs.
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Big Blue Boosts Stocks
Stocks rose after IBM offered a surprise and upbeat preannouncement of its fourth-quarter results. The Dow Jones Industrial Average was up 171.85 points, or 1.4%, to 12778.15, led by component IBM. The company's rally lifted the broader technology sector and the tech- heavy Nasdaq Composite Index was up 1.6%, or 38.4 points, to 2478.30. The Standard & Poor's 500-stock index was up 1.1%, or 15.2, to 1416.25. Treasury prices rose modestly in a see-saw session. The dollar was weaker against other major currencies. Oil futures rose. Shares in Asia finished mostly lower and European shares snapped a three-session losing streak.
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China Could Hamper Citigroup Deal
Citigroup's plans to raise capital by selling a stake of about $2 billion to China Development Bank could be in jeopardy because of opposition from China's government. The Chinese government's apparent rejection of a planned multibillion-dollar investment in Citigroup Inc. by state-owned China Development Bank suggests there may be limits to Beijing's status as a cash source for Western banks eager to plug holes in their balance sheets. Citigroup has been seeking foreign investors, including China Development Bank, to invest in the U.S. lender to boost its balance sheet in the face of mounting write-offs, caused by Citigroup's massive exposure to subprime mortgage debt.
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Sprint CEO Plans to Cut More Jobs
Sprint Nextel plans to lay off several thousand employees, and new CEO Dan Hesse is evaluating a plan to consolidate the company's headquarters in Kansas. The extent of the layoffs at Sprint -- which has 54 million wireless customers and is lagging far behind competitors AT&T and Verizon Wireless in subscriber additions -- isn't clear. But they are likely to be in the range of a few thousand, people familiar with the matter say. Sprint, which let 5,000 workers go last year, has about 60,000 employees.
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More Details on EMI Cuts
In other layoff news, job reductions and centralization of business functions are expected to generate up to $391 million a year in savings for struggling EMI Group. Private equity firm Terra Firma Capital Partners, which bought EMI last year for GBP 3.2 billion, plans to strip EMI's individual record labels such as Capitol, Virgin and Parlophone of many of their responsibilities, according to a person familiar with the matter.
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Peace, Democracy Top Bush Agenda
President Bush announced a $20 billion arms sale to Saudi Arabia, an important part of the U.S. strategy to bolster the defenses of its Arab allies. The president, who is nearing the end of a trip to the region, has talks with King Abdullah in which they were expected to discuss Mideast peace and democracy.
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Apple, China Mobile End iPhone Talks
China Mobile Communications, the parent of Hong Kong-listed China Mobile Ltd., said Monday it has ended talks for now with Apple over the launch of iPhone handsets in China. Few details were available, but Chinese Internet portal Sina.com reported Monday that China Mobile and Apple couldn't agree on revenue-sharing terms in their preliminary discussions, citing an official at China Mobile's data services department. The breakdown in talks could open the way for China Mobile rival China Unicom to offer the iPhone exclusively in mainland China.
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Zetia/Zocor Study Disappoints
An eagerly awaited study suggested the blockbuster cholesterol drug Vytorin -- a fixed-dose combination of simvastatin and Zetia -- didn't provide any significant benefit versus a statin drug alone in slowing down clogging of the arteries in people with hereditary high cholesterol. The bottom line, via WSJ.com's Health Blog, is that Zetia, or ezetimibe generically, "didn't bring anything important to the cholesterol party. That's bound to be a bummer for sales of Zetia and Vytorin, the drug that combines Zocor, now sold generically as simvastatin, and ezetimibe." Pharmaceutical giants Merck and Schering- Plough have a joint venture that markets both Vytorin and Zetia.
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Airports May Base Landing Fees on Traffic
Congested U.S. airports can charge landing fees based on the time flights land and the volume of traffic instead of on the plane's weight, according to a new federal policy. U.S. Transportation Secretary Mary E. Peters said the policy will make it easier for airports to reduce delays by encouraging airlines to spread their flights more evenly throughout the day.
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MySpace Adds Protections for Teens
MySpace agreed to add new measures to protect teenagers on the online-social networking site in a deal with a group of attorneys general. As part of the deal, MySpace will include several online protections and participate in a working group to develop age- verification and other technologies. For example, the News Corp. unit will set the profiles of 16- and 17-year-old users so they are private by default. News Corp. also owns The Wall Street Journal.
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Ford Motor's 'EcoBoost' Engine
Bill Ford Jr. is hoping to boost Ford Motor's green image with a series of turbocharged direct injection engines that the auto maker thinks will improve fuel economy across its fleet. The technology, which Ford has dubbed "EcoBoost," improves mileage about 20% through a more efficient combustion process while increasing power to smaller, better-mileage engines. Ford hopes to put the technology in half a million vehicles annually within the next five years.
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Sears Slump Continues; Stock Sinks
Sears Holdings sees earnings below expectations as the retailer reported a drop in same-store holiday sales and lower profit margins, citing increased competition and unfavorable economic conditions. Sears has been especially hard-hit by the housing slowdown. Its stock fell 5%.
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Harman Slashes Earnings Forecast
Harman International Industries slashed its fiscal 2008 earnings guidance citing recent "significant pricing pressure" on in-car GPS devices, sending shares tumbling more than 25%. In September, Kohlberg Kravis Roberts and Goldman Sachs's equity arm walked away from a planned $8 billion leveraged buyout of Harman, saying they found financial conditions inside the stereo maker to be unacceptable.
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Update on Smaller Banks
Philadelphia's Sovereign Bancorp warned that its fourth-quarter results will be hurt by about $1.61 billion in pretax charges, citing volatility in the financial markets and deterioration in the credit markets. Elsewhere, M&T Bank's fourth-quarter net income fell 70%, as the trust-holding company wrote off nearly all of its collateralized debt obligations backed by subprime residential securities.
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Tysabri Is Approved for Crohn's
The FDA approved Tysabri for use in patients with Crohn's disease. Tysabri, sold jointly by Elan and Biogen Idec, was previously approved in 2004 as a treatment for multiple sclerosis.
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A Half Century of Smurfs
Belgium is known for a lot of things, including waffles and an array of skull-crushingly strong beers that would make even a much-larger nation proud. Oddly, another product of this bastion of biculturalism is the surprisingly homogenous group of blue-skinned gnomes known as Schtroumpf, which, in American, is translated as the Smurfs. The Associated Press reports that 2008 is the 50th anniversary of these mushroom dwellers, which comes as a bit of a surprise to a child of the 1980s such as myself, who always thought the Smurfs were begotten roughly around the time I was. The Smurfs originally surfaced as supporting characters in a 1958 cartoon called "Johan and Pirlouit," which was set in the Middle Ages and drawn by Pierre Culliford, a cartoonist who went by the pen name "Peyo." Still, for me, the Smurfs -- along with other icons of the 1980s, such as Q*bert, Walter Mondale and Tab cola -- will always occupy a shadowy section of my early childhood memories. Enough with the therapy session; on with some meaningless trivia. In Spanish, a Smurf is a Pitufo. The Gerrmans call them Schlumpfs. They're Nam Ching Ling in China and, in Japan, one of the little guys -- or Smurfette -- is a Sumafa. They're called Dardassim in Hebrew.
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The Associated Press contributed to this report.
